Question

What’s the cost analysis for the state of Texas if Medicaid was expanded specifically for uninsured veterans? Who would end up paying for the expansion? What alternative model would be the best at paying for the expansion?

Answer 1

Since the government is the sole funder for the Medicaid services that it provides, it has to fund it using the revenue that it generates through various means like taxes, excise duties, transfer payments etc.

In a tax collection system, the tax payed by any individual is contingent on their income. Therefore, in such a progressive tax system, the richer pay a higher tax compared to the lower income bracket individuals. So, whenever the government provides a service to the public, a section of the community is left out who don't accrue the benefits of the services either because they don't find it useful, or simply cannot access it because of other constraints. Therefore, in essence an expansioin of such a service will cost the higher income bracket individuals more than any other tax payer, almost just like a money redistribution system.

So, there are a few ways the government can generate this revenue needed for the expansion, by causing the minimum disruption in society, or the market.

Price discrimination in a regulated manner is a very useful tool to generate maximum revenue by firms. Since the revenue can be taxed accordingly, the tax revenue is also maximized in the process. For example, imposing a tax on luxury goods can generate a lot of revenue solely because the people consuming it are willing to pay for it, and are not hugely affected by the tax on it. Since luxury goods are mainly consumed by the wealthy, it is like an auto-selection of the section of the community that can be willingly taxed.

There are like this, three types of price discminations that exist, namely first degree price discrmination, second degree price discrmination, and third degree price discrimination. Please check those out, to get a more hollistic understanding of the ways revenue can be maximized, and in turn maximize tax revenue.

A fiscal stimulus can boost the economy an automatically expand everybody's income in the country. This will push a lot of people outside the bracket of individuals who require the Medicaid services, therefore reducing the need to shell out that much money for the services, and also increase tax revenue since a lot more peoples' incomes have increased.